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Federal Reserve chief warns GOP: Don't hold debt-ceiling vote hostage

Federal Reserve Chairman Ben Bernanke approves of plans to bring federal deficits under control, but he tells senators not to link such a move to a coming vote on raising the debt ceiling.

By Staff writer / March 1, 2011

Federal Reserve Chairman Ben Bernanke testifies before the Senate Banking, Housing, and Urban Affairs Committee on Capitol Hill in Washington Tuesday.

Jim Young/Reuters


Federal Reserve Chairman Ben Bernanke waded into a contentious Washington debate Tuesday, telling a Senate committee that he is "worried" about Republican efforts to link a decision on the nation's debt ceiling to passage of reforms to curb federal spending.

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"It's extremely important that you address this issue" of long-term federal deficits, Mr. Bernanke said. "I'm just worried about using the debt limit as the vehicle" for reforms.

By stating that, the Federal Reserve chairman in effect sided with the Obama administration and its Treasury secretary, Tim Geithner.

The nation's federal debt is close to hitting a $14.3 trillion ceiling set by Congress. The Treasury says it will reach the cap sometime between this month and May, and Secretary Geithner has asked Congress to raise the limit.

Some congressional Republicans say they may oppose raising the ceiling on the national debt unless the move is paired with budget reforms.

Sen. David Vitter (R) of Louisiana said he knows Congress will need to raise the debt limit higher, but worries it would send a negative signal to financial markets if that step is not linked with new constraints on federal deficits.

Bernanke's credit-card analogy

Bernanke said he would "really support a program" for long-term fiscal discipline. And he said that, in theory, he had no problem with the idea of Congress doing that at the same time as raising the debt ceiling.

The risk would be if that effort to link the two raised doubts in the minds of bond investors as to whether the debt limit would, in fact, be raised. Bernanke warned that "even the possibility of default on existing debts" could have negative consequences for Treasury bond interest rates and the economy.

Bernanke used the analogy of a family with credit-card debt to explain how the debt ceiling differs from congressional spending decisions.


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